Inventory & Warehouse Management Terminology [CHEAT SHEET]

Every industry has its own collection of acronyms and slang which can be confusing when dealing with customers, vendors and partners if you are not up-to-speed on their meanings. This can frequently be made more difficult if businesses in the industry use the terminology differently. For wholesale distribution businesses, there are a lot of different terms used to describe various processes for inventory and warehouse management. If you aren’t familiar with the terminology associated with the tools and resources available in the industry, trying to determine the best way for managing inventory in your warehouse, designing efficient processes around picking, packing and shipping and creating good relationships with customers can be difficult. This cheat sheet explains several common acronyms and specific language used throughout the supply chain for easy reference.

The way in which you ship product from your warehouse to your customers will depend on several different factors. These include the type of shipment (and if the inventory requires any extra care or special treatment – for example, cold storage), the size of the product and shipment, the ship-to location, and the speed of which the shipment needs to be delivered. Depending on your answers to the above, different strategies for shipping product will apply. Below we examine some of the options.

Freight Forwarder

A freight forwarder is a company responsible for coordinating the shipment of goods from one location to another, using a single or multiple carriers via air, rail, marine or highway. Freight forwarding companies are experts in the efficient and cost-effective transportation of goods and take responsibility for maintaining the condition of goods and making sure that product arrives to the right place on time. Freight forwarders will also negotiate with other members of the supply chain including customs, and are also responsible for managing the risk associated with moving product.

LTL Freight (Less Than Truckload)

An LTL shipment or LTL freight is the transportation of relatively small freight in which the entire shipment from one company is not large enough to take up an entire truck. In this situation, the wholesale distributor shipping the product only pays for the space in the truck that gets filled by that shipment, leaving the rest of the truck empty to be filled by other shipments from other companies. LTL shipments are a great option for smaller shipments with long lead times as the shipments typically take longer to arrive at the destination due the combination of multiple shipments onboard and therefore frequent stops.

FTL Freight (Full Truckload)

A FTL shipment or FTL freight is a shipment that takes up an entire truck by itself. This is usually reserved for shipping multiple pallets of product or larger items. Since the truck is filled with only shipments from your wholesale distribution business, the time it takes to get the product to the customer may be quicker, and the product stays on the truck the entire time which reduces the risk of damage. Even if you aren’t able to fill an entire truck with your shipment, this option is beneficial for high-risk shipments.

JIT (Just In Time)

Just In Time is a strategy that applies to a variety of industries and processes. For wholesale distributors, it often applies to the receipt of inventory or raw materials from suppliers just in time to align with production schedules, orders and shipping requirements. This strategy aims to increase efficiencies and decrease the costs associated with holding inventory. JIT only works if the entire supply chain is aligned to ensure product is ordered, shipped and received exactly when needed.

Terminology Around Costs

Landed Costs

Landed costs are the costs incurred with getting product from your supplier/manufacturer into your warehouse, not including the cost of the good itself. At a minimum, landed costs typically include insurance costs, storage costs, purchasing agency commissions, regulatory fees, freight costs and imports costs. It is important to track and accurately associate landed costs to inventory items to track total costs and to determine product pricing.

Rate Shopping

Rate shopping is the process of comparing costs across multiple solutions. For wholesale distributors, rate shopping can apply to comparing the costs of using different carriers when shipping product. Some wholesale distribution software providers will include functionality that allows customers to easily and quickly compare shipping costs for multiple carries on any given package or shipment in order to determine the best shipping method. Even if your business has a good relationship with existing carriers, you may be able to benefit from significant cost savings by comparing rates.

Warehouse Terminology

Virtual Warehouse

A virtual warehouse allows inventory to be physically housed anywhere – including at a distribution center, temporary facility, within a specific section of an existing warehouse etc. – and then tracked and accounted for in wholesale distribution software as its own “warehouse” location. There are a variety of benefits to setting up a virtual warehouse, including the ability to separately track and manage inventory (such as B2C eCommerce inventory) from within the same physical location as inventory for wholesale (B2B) customers.

3PL Logistics

A 3PL logistics company is a 3rd party business that allows you to outsource specific elements of inventory management and the supply chain. Depending on the 3PL in question, they may provide different services including management of all distribution activities, warehousing, fulfillment and shipping services. Working with a 3PL is beneficial to smaller businesses with limited resources and makes it easy to sell product to customers in other geographic locations by working with a 3PL in that region.

Cross-Docking

Cross-docking is a strategy for warehouse management where employees unload inventory/product from an incoming shipment during the receipt process, and then load that material directly onto outbound trucks for shipment to customers – with little to no storage in between. Cross-docking is designed for specific warehouse operations, such as when dealing with time-sensitive and perishable inventory as it allows product to get to your customers faster.

Reverse Logistics/Reverse Supply Chain

Reverse logistics is essentially managing returns and relates to the movement of goods from the customer to the vendor. This process also applies to sending unsold product back to the manufacturer to be taken apart, sorted, reassembled or recycled. Utilizing efficient reverse logistics strategies minimizes inventory holding costs and improves the RMA process.

RMA (Return Merchandise Authorization)

RMA or Return Merchandise Authorization is the process for dealing with customer returns. The right wholesale distribution software will allow you to track and manage the RMA process, providing better insight into what products are being returned the most and why, and if the return process is easy and intuitive for customers (without making it so easy that it encourages returns). Efficient RMA processes improve customer satisfaction and retention by helping businesses pay more attention to faulty goods and repairs of merchandise.